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UBS Investment Research
Manappuram Finance
Declining wholesale rates is a positive
„ Six month CD rates declined 50 bps in last two weeks
Since beginning of June, 6 month banks CD rates have declined by 50 bps till date
and 6 month CP rates have declined by 40 bps. Our interaction with various banks
also suggests that, banks are not aggressively raising CDs in light of slow loan
demand which is typical of Q1. In our view H2FY12, with slowing loan demand and
likely lower inflation, wholesale rates have further downward bias. We believe
MGFL should benefit with lower wholesale rates as it is funded primarily at the short
end of the yield curve. We estimate NIMs to decline 166 bps in FY12 to 12.5%.
„ Growth outlook healthy, asset quality risks appear low
Given the under-penetration of gold financing market, we do not expect cyclical
increase in rates and a macro slowdown to impact MGFL’s growth. We estimate
assets under management (AUM) to grow at 43% CAGR over FY11-13E. Asset
quality risks appear low due to available collateral and ease of its liquidation.
„ Risks – potential regulatory changes, higher competition from banks
We believe further regulatory changes by Reserve Bank of India (RBI) could alter
the return profile of the business; however the segment has already seen stringent
regulatory actions by way of higher CAR requirements (15%) and removal of PSL
status for gold loans. Private banks are increasingly focussing on gold loan product
given the growth and returns, however the target segment and ticket size differs
from that of MGFL.
„ Valuation: Looks attractive; reiterate Buy
We derive our price target of Rs 77.50 (ex bonus) based on residual income model
which implies 2.7x FY12E book.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Manappuram Finance
Declining wholesale rates is a positive
„ Six month CD rates declined 50 bps in last two weeks
Since beginning of June, 6 month banks CD rates have declined by 50 bps till date
and 6 month CP rates have declined by 40 bps. Our interaction with various banks
also suggests that, banks are not aggressively raising CDs in light of slow loan
demand which is typical of Q1. In our view H2FY12, with slowing loan demand and
likely lower inflation, wholesale rates have further downward bias. We believe
MGFL should benefit with lower wholesale rates as it is funded primarily at the short
end of the yield curve. We estimate NIMs to decline 166 bps in FY12 to 12.5%.
„ Growth outlook healthy, asset quality risks appear low
Given the under-penetration of gold financing market, we do not expect cyclical
increase in rates and a macro slowdown to impact MGFL’s growth. We estimate
assets under management (AUM) to grow at 43% CAGR over FY11-13E. Asset
quality risks appear low due to available collateral and ease of its liquidation.
„ Risks – potential regulatory changes, higher competition from banks
We believe further regulatory changes by Reserve Bank of India (RBI) could alter
the return profile of the business; however the segment has already seen stringent
regulatory actions by way of higher CAR requirements (15%) and removal of PSL
status for gold loans. Private banks are increasingly focussing on gold loan product
given the growth and returns, however the target segment and ticket size differs
from that of MGFL.
„ Valuation: Looks attractive; reiterate Buy
We derive our price target of Rs 77.50 (ex bonus) based on residual income model
which implies 2.7x FY12E book.
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